Realistbear Posted March 22, 2006 Share Posted March 22, 2006 http://www.businessweek.com/investor/conte...0322_670088.htm This is a very important article from the most widley circulated business source in the US. What is happening in Japan right now has the most significant financial implications in economic history for over 100 years, IMHO. We have a heads up warning and Japan are doing all they can to let the world prepare for what is coming. Quote Link to comment Share on other sites More sharing options...
delite1 Posted March 22, 2006 Share Posted March 22, 2006 RB and anyone else who has an opinion, What is likely to happen to Japanese rates? What will be the consequences? When do you see this happening? Quote Link to comment Share on other sites More sharing options...
The Plumber Posted March 22, 2006 Share Posted March 22, 2006 http://www.businessweek.com/investor/conte...0322_670088.htm This is a very important article from the most widley circulated business source in the US. What is happening in Japan right now has the most significant financial implications in economic history for over 100 years, IMHO. We have a heads up warning and Japan are doing all they can to let the world prepare for what is coming. If this news is so significant where are all you veteran hpc, come on don’t go silent now ! THE PLUMBER Quote Link to comment Share on other sites More sharing options...
jonpo Posted March 22, 2006 Share Posted March 22, 2006 It Is important. at least it will be when and not if something goes wrong as a result of surgeing yen and crashing bonds Quote Link to comment Share on other sites More sharing options...
ETOPS773 Posted March 22, 2006 Share Posted March 22, 2006 Hmm...I'm no expert on this however as I understand it... It means the amount of money in the system will be reduced quite a bit, and "cheap money" will no longer be quite so cheap as the banks will pay more interest on the money they have borrowed. At the moment I think the interest rates out there are about 0.1%, so if it went to say 1% then thats a 10 time increase in the interest banks would have to pay - this would be passed onto the customers. Quote Link to comment Share on other sites More sharing options...
RobertPaulson Posted March 23, 2006 Share Posted March 23, 2006 RB and anyone else who has an opinion, What is likely to happen to Japanese rates? What will be the consequences? When do you see this happening? read this, an interesting account of the last time the Yen carry trade unwound (and the bandwagon is orders of magnitudes bigger now). Its also a good primer to the money markets and bond trading. How One Small Bank Created a Trillion-Dollar Hole When Genius Failed is the extraordinary final instalment in a financial saga that began with the gambling on the futures markets in the 1980s. It is the conclusion of the poker players so memorably depicted in Liar's Poker and, fictionally, in Bonfire of the Vanities. By 1994 John Meriweather, the pivotal figure on the trading floor at Salomon Brothers during the 1980s when the firm had made $500 million annual profits in arbitrage alone, was out of work. To fill his time, he created a financial institution as much a product of the era of the 1990s as the futures floors had been in the 1980s: a hedge fund, named Long-Term Capital Management. Meriweather took to LTCM the brightest of his disciples from Salomon and added Nobel prize-winning economics from Harvard. The team believed that it could outsmart the markets in a strategy of hedge betting, leveraged to levels previously unseen. Even a small percentage profit could be turned into a huge financial gain if the stake placed was big enough. So LTCM bet big, very big. Hedge funds are the equivalent of private clubs on Pall Mall or exclusive Oxbridge colleges: you have to be invited to join. And you have to be extremely rich. LTCM's partners quickly included every bank on Wall Street and many of Europe's premier banks as well. They built up a fund of $100 billion. Which meant that they could really put some money down. And they made spectacular profits for a while. Until the pressure to keep achieving led to increasingly risky speculations and less protected gambles. When the markets in Brazil, Indonesia and Russia all crashed within months of each other it was as if a wrecking ball had ploughed through LTCM. But because they had continued to leverage their investments at very high multiples the effect was shared throughout the world's banks. When LTCM went down it threatened to open up a trillion-dollar black hole, a financial abyss that could have busted a continent and an entire banking system. In a classic tale of greed, ambition, pride and overbearing confidence in their ability to beat the market, Meriweather's poker players play out their last hand. A parable of extraordinary drama, it is also a brilliant morality story of our times and a vivid warning of capitalism's ability to consume its own. Quote Link to comment Share on other sites More sharing options...
delite1 Posted March 23, 2006 Share Posted March 23, 2006 " ``Domestic demand is incredibly resilient now,'' said Azusa Kato, an economist at BNP Paribas Securities Ltd. in Tokyo. ``With consumers set to increase spending now that deflation concerns are fading, the Bank of Japan may raise rates by 25 basis points as soon as October.'' http://quote.bloomberg.com/apps/news?pid=1...aANU&refer=home Quote Link to comment Share on other sites More sharing options...
BoredTrainBuilder Posted March 23, 2006 Share Posted March 23, 2006 http://www.businessweek.com/investor/conte...0322_670088.htm This is a very important article from the most widley circulated business source in the US. What is happening in Japan right now has the most significant financial implications in economic history for over 100 years, IMHO. We have a heads up warning and Japan are doing all they can to let the world prepare for what is coming. You're seriously underestimating the effects of this forthcoming financial Tsunami, which will be the biggest thing in all of recorded human history or even before. Quote Link to comment Share on other sites More sharing options...
Guest consa Posted March 23, 2006 Share Posted March 23, 2006 (edited) If this news is so significant where are all you veteran hpc, come on don’t go silent now ! THE PLUMBER This is not so significant, Japan has Interest rates of 0.1% and just been through the longest period of recessionary times, I would imagine that debt/leverage is very low so therefore the servicing the same wouldn't be a problem. Latest:- POLL-Japan individual investors undeterred by BOJ policy TOKYO, March 23 (Reuters) - Few Japanese individual investors plan to scale back investment in the stock market just because the Bank of Japan ended its five-year-old ultra-easy monetary policy earlier this month, a Reuters survey showed on Thursday. Retail investors, who account for about 40 percent of the activity in the Tokyo market, are focused instead on the economic strength behind the BOJ's move and brighter prospects for banks, whose lending rates are likely to rise faster than the rates they pay depositors, the survey showed. http://today.reuters.com/business/newsarti...storyID=nT72512 Edited March 23, 2006 by consa Quote Link to comment Share on other sites More sharing options...
since the beginning Posted March 23, 2006 Share Posted March 23, 2006 You're seriously underestimating the effects of this forthcoming financial Tsunami, which will be the biggest thing in all of recorded human history or even before. Quote Link to comment Share on other sites More sharing options...
Realistbear Posted March 23, 2006 Author Share Posted March 23, 2006 The shift in Japanese financial policy from extremely accomodative interest rates toward neutral or even tightening comes about because their economy is moving out of many years of internal stagflation. The Japanese have, in effect, caused inflation everywhere but in their own country by loaning their profits to the worlds' banks for next to nothing. Japan has the 2nd largest economy in the world. All of that growth has had to go somewhere and it has manifested itself in some 3 Trillion dollars (perhaps a lot more after the snowball effect?) in outstanding loans to the world at low interest rates. I believe that vast sum has been behind the hyper inflation that the world has experienced in the last decade in terms of house prices and the ability to absorb oil prices that are now in excess of $60 bbl without commensurate "inflationary" pressure on wages. In the 1970's a bump in oil price brought a massive recession. Not this time because of the liquidity in the system courtesy of Japan. Historically high house prices have been sustained because people can afford to pay for them through borrowing at very low interest rates made possible by the world's second largest economy pumping profits back into the market. The hyper inflation (house prices up by around 130%) we have witnessed over the past 7 years or so has caused house prices to rise beyond the ability of people to pay for them BUT FOR cheap credit. The relaxation of lending standards and the abandonment of traditonal formulas for lending (3-4 times established income) has added fuel to the fire. The UK and the US house markets have moved away from the fundamentals that would ordinarily be necessary to sustain them because of the supply of money that has been made availabel at artificially low rates. We have not "earned" the right to own houses at 7 times average income but have borrowed our way to wealth on the back of the nation that has produced the wealth to sustain, temprarily at least, the levels of real inflation that is evidenced in the house prices we see today. The Japanese real estate market collapsed about 15 years ago, I believe, and has not recovered because they have pumped their surplus, or their hard earned wages, into the world financial system at low interest rates. The UK house market has been the beneficiary of the money the UK has not earned. This is the essence of house price "inflation" or the air that has filled the bubble. We have, in effect, been living high on the hog without paying for it. Hence 1.2 Trillion pounds of private debt in the UK and roughtly the same amount in the US after factoring in population differences and exchange rates. The change in Japanese policy will effectively call in the cheap loans to be replaced with real rates of interest that will no longer be at zero. The Japanese are trying to brace the world banking system for the change by giving notice that the financial "free lunch" has been terminated. As rates rise they will ripple through the world's banking system quickly and exponentially. A .25% rise in the B o J's rate will not mean a .25% rise in the UK mortgage rate as each bank in the system will want a cut of the action with the ultimate borrower paying the marked up IR of several percentage points. This is a serious matter which is why the world's business media is covering the story in depth. If the Japanese follow through with their policy we could, and I do say could, see a doubling of IR within a very short space of time. The high house prices made possible by cheap loans will suddenly become as expensive in terms of mortgage payments as they would have been BUT FOR the availability of cheap Japanese credit. Bottom line: We will have to pay for what we have and as we do not have the same level of production or fiscal dicipline as the Japanese prices will eventually return to equilibrium which is about 3-4 times average income. The stinger in the tail is that, despite falling prices, the debt will remain. This is why I quote Mervyn King in my footnotes below. Mervyn sums all the above up in just a few words: Debt is reality and house prices are just opinion that has to eventually be backed up with the ability to pay. Quote Link to comment Share on other sites More sharing options...
BoredTrainBuilder Posted March 23, 2006 Share Posted March 23, 2006 Well argued, realistbear. Surely it will all take place quite slowly, though, other factors completely divorced from Japan have also allowed for cheaper money such as greater productive capacity around the world and also low interest rates in the US. Quote Link to comment Share on other sites More sharing options...
Realistbear Posted March 23, 2006 Author Share Posted March 23, 2006 Well argued, realistbear. Surely it will all take place quite slowly, though, other factors completely divorced from Japan have also allowed for cheaper money such as greater productive capacity around the world and also low interest rates in the US. I am not so sure about the "slowly" factor anymore: http://freeserve.advfn.com/news_Tokyo-land...5_14718665.html Tokyo land prices rise for first time in 15 years in 2005 TOKYO (AFX) - The average price of land in Tokyo rose for the first time in 15 years in 2005, according to an annual government survey, a strong sign Japan is emerging from years of deflation. The Japanese will not want inflation to ruin their long awaited recovery in which case I think we may see some hikes from the BoJ this side of the summer. Quote Link to comment Share on other sites More sharing options...
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